What Is LCOE, and Why Does It Matter?

April 29, 2020

In renewable energy, there’s an acronym that is used a lot, but not many people outside of the industry know what it means.

In this post, we’re discussing the Levelized Cost of Energy, or LCOE. This term is critically important in understanding the overall value that renewable energy systems like PV solar, wind, biomass, and other power sources provide.

It’s an easy, straightforward way to describe the benefit—in terms of dollars and cents—that renewable energy can have on the bottom line.

LCOE, Defined

Academically, LCOE can be defined as “the measure of the average net present cost of electricity generation for a specific system over its lifetime”.

Here at Urban Solar, our own twist on LCOE is: the net costs of solar divided by the total number of kWh’s the solar power system will produce over its lifetime.

Here’s how LCOE is calculated:

When you divide the net costs of solar by the number of kWh’s it will produce over 25 years, you get a price per kWh or $/kWh. A typical residential system will have an LCOE of $0.06/kWh.

Without solar in the equation, the cost of energy is going to be roughly double that, or $0.12/kWh. This means that an average residential solar power system can be expected to reduce energy consumption costs by as much as 50% over the long term.

Lower LCOE Now Than Ever Before

Keep in mind that it’s quite possible for a solar power system to remain in operation for longer than 25 years. Modern solar panels, inverters, and mounting equipment are getting better and better every year as manufacturing technology continues to improve.

What this means is that the LCOE for a new solar power system today is likely to be much lower than a system that was purchased and installed just 10 years ago (remember that lower LCOE is better). That’s how fast technology is progressing in the modern age.

What Would Your LCOE Be? Contact Us to Find Out

Every solar power generation system is different, and as such, the cost savings vary from customer to customer.

When you receive a free energy analysis from Urban Solar, you’ll learn how much you could save on your electricity bills every month, giving you a window in the future of your operating expenses with solar in the mix.

Ready to get started? Contact us today.